This vicious cycle comes as central banks from Brazil to India sell dollars to halt a slide in their free-falling currencies. The problem is that means selling U.S. Treasurys, raising doubts over who will buy this debt if overseas buyers turn away and, if recent correlations are any guide, hurting their currencies still more.

According to Morgan Stanley’s estimates, foreign-exchange reserves for developing economies, with the exception of China, have dropped by $81 billion since the beginning of May. The fall coincided with the start of talk that the U.S. Federal Reserve would begin unwinding bond purchases from the current monthly rate of $85 billion.

Treasury prices fell and yields rose as investors got around to the idea that there would be less support for the market from the Fed than was previously the case. The rise in Treasury yields (yields are near their highest levels in over two years) also meant there was less need to buy riskier emerging market bonds for returns. Thin trading conditions magnified the sell-off, and as overseas investors rushed out the dearth of dollars put local currencies under pressure.

On its own, the depletion of reserves is not surprising. After all, many countries, especially those in Asia, had beefed up their reserves after the financial crisis in 1997 so that they could intervene in the currency market at a time such as this. (Whether recent interventions have actually succeeded is another matter altogether).

But given the dollar’s status as the global reserve currency and the amount of global foreign exchange reserves parked in U.S. Treasurys, the drawdown by overseas central banks could have repercussions for U.S. government debt.

From Kit Juckes, currency strategist at Societe Generale:

“You can question numbers on global reserves, not least because of the use of swaps, but the bottom line is clear: global currency reserves, having peaked at $6.08 trillion earlier this year, are on their way down. This matters on two levels. Firstly, FX reserve accumulation is similar in its effect to quantitative easing, so unwinding this mountain represents a reversal of global QE. This is more potent than ‘tapering’. Secondly, it leaves a hole in the U.S. Treasury auction process. Over the last couple of years, U.S. private sector investors have been completely squeezed out of longer-dated Treasurys, buying nothing with a duration longer than five years. But as emerging market central banks and the Fed step back, they will have to return. There’s a chance we have already ‘priced in’ tapering, but who buys at the first few auctions after this starts will be intriguing and I doubt markets can really calm down until we see how this plays out.”

Mr. Juckes’ view is shared by strategists at Bank of America Merrill Lynch who noted:

“Recent emerging market currency declines has fed fears of central bank reserve selling and led to rising Treasury yields. This two-way causation raises the risk of a self-reinforcing cycle between the bond and currency markets, where the Treasury reserve assets are themselves vulnerable to losing value.”

Of course, higher yields could lure buyers who previously believed Treasurys did not adequately compensate them for the risk they were taking. A pronounced sell-off in Treasurys may also prompt the Fed to reassess or tweak its tapering plans.

But the close linkages between developing and developed countries highlight the risks to markets in one corner of the world to developments elsewhere. The vast accumulation of foreign exchange reserves in recent years, coupled with the haven appeal of Treasurys meant the U.S. government could borrow at incredibly low rates despite debt metrics that would make some investors shudder. The U.S. will now be hoping that any retreat by overseas central banks is gradual, and not particularly painful.